Contract management – 3 things to consider
Contract management is an essential function for most public value organisations. Effective contract management is critical to achieving procurement objectives and public value outcomes. However, too often it can be an afterthought to procurement activities, which is not considered a priority until problems present.
In order to enable and support effective contract management, organisations must have in place a number of key elements, including embedding contract management into the procurement process, using the right contract administration tools, and having appropriately skilled people.
1. Integrating Contract Management and Procurement
The procurement and contract management functions are inherently connected, as the decisions made during procurement will determine the long term success or failure of contract management. Too often, contract managers inherit contracts having had little or no involvement in the design of specifications or the Key Performance Indicators (KPIs). This can then lead to ineffective or inefficient contract administration. It is therefore critical for organisations to integrate the procurement and contract functions to ensure a co-ordinated and consistent approach. We are seeing increased recognition of this across the Victorian Public Sector. One of the key aspects of the Procurement Reform driven by the Victorian Government Purchasing Board (VGPB) currently being implemented across departments and agencies is the escalation of contract management to a high-level consideration early in the procurement planning process, to arrive at an integrated end-to-end procurement framework.
2. Using Contract Administration Tools
Once executed, a written contract is a record of each party’s obligations, but is not designed as a day to day operational management document. In order to assist contract managers, tools are available which break through the legalese and operationalise the contract in the context of the particular team and organisation. A Contract Administration Manual (CAM) is one of these tools, and at Cube Group we have successfully developed and implemented CAMs for a variety of contracts and clients.
The purpose of the CAM is to identify:
- What needs to be done, by whom and when: a good CAM assigns accountabilities, identifies government’s obligations, helps mitigate and control risks, and provides details regarding how the organisation will monitor the private party’s performance of its obligations;
- How government’s role will be performed: a good CAM identifies the resources, delegations and authorisations required for government to perform its obligations; and
- Ramifications of any non-performance or default and how these should be addressed: a good CAM provides contingency plans and outlines issue and dispute resolution mechanisms.
The CAM also provides the contract management team with a centralised collection of all the tools and processes used in managing the contract.
In developing a CAM, it is important to tailor it to the nature and complexity of the particular contract. We ensure its relevance and usefulness by closely engaging with the individuals and groups involved in day to day contract administration activities, understanding how the relevant activities are undertaken, and reflecting this in the product.
3. Having appropriately skilled people
Feedback from Cube Group’s recent Institute of Public Administration Australia (IPAA) Contract Management sessions, and our own observations, suggest that contract managers and administrators in the Public Sector do not always have clarity around their role, governance and decision-making arrangements. It is important that contract management responsibilities are clearly identified and people in these important roles supported to develop and execute their skills appropriately. Organisations should give consideration to the following key areas:
- Provision of formal contract management induction and training in the organisational contract management procedures prior to taking responsibility for managing contracts;
- Appropriate transition is provided to contract managers taking over existing contractual arrangements;
- Contract management responsibilities are clearly identified in position descriptions;
- Contract managers have clear objectives and their performance is managed through reviews and appraisals;
- Clear reporting lines and escalation protocols are in place;
- Each contract is assigned a contract manager and their roles and responsibilities within each project are understood; and
- Contract managers have appropriate delegated authority to enable effective decision-making.
Government departments and agencies should not underestimate the importance of contract management and should seek to integrate it within the procurement cycle. Appropriate resources should be allocated to this business critical function, and appropriate support provided to contract management staff.